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WellPack Papers 300 times in 2 yrs – Markets sleeping or Regulators?


posted by NOORESH MERANI on Tuesday, July 27th, 2010


I was looking into this company Well Pack Papers and Containers a few days back but research on Bombay Burmah Trading Corporation did not allow me to teh time look into the details. I asked a good friend of mine Neeraj Marathe a diehard deep Value Investor to help me out. Here is what we came out with.

 

 

(In the few days stock added another 50 crores of market cap since the chart was made.)

Well Pack Paper Containers

The paper sector is an extremely cyclical sector. The valuations that paper companies command are a testimony to this fact. Paper companies rarely get high multiples.

With this in mind, how much would you value a paper company, given that

=> The company does not manufacture any type of specialized product.

=> Its FY10 sales are about Rs.20 cr.

=> Its FY10 PAT is about Rs.0.39 cr (39 lakhs).

=> Its 3 year sales CAGR has been -2% (yes, its negative growth)

=> Its 3 year PAT CAGR has has been -16% (yes, negative again)

Now, what if I tell you that over the last 3 years, the price of this company’s shares has gone up by 300 times or 3000 % and that today, its market cap is about Rs.950 cr!!!! Effectively, it is trading at 46x market cap to sales, 550x EV to EBIDTA and 2300x PE ratio!!

To add more perspective to this, West Coast Paper has a market cap of Rs.560 cr, Tamilnadu Newsprint & Papers (TNPL) has a market cap of Rs.850 cr.

Now this is hilarious. Why on God’s green earth should a company get this kind of valuation? Does it have hidden assets, like land? Nope! Does it have a super-duper massive capex plan, which will make it one of the largest paper companies in India? Nooo it doesn’t. Then what is the deal here?

Now it gets hilarious. As I kept digging deep there were more surprises in store.

Just see the list of bonus and split to keep the absolute price to not look exaggerated. (Adjusted lowest price comes to 0.36 paise). 3:4 Bonus and 10:1 split in March 2010. Dividend History – Nil

Now another interesting thing is the large volumes. The stock trades 30 lakh shares everyday which in value terms is 30 crores or more!! Another surprise the stock is in trade to trade ( T2T ) segment which means one cannot trade intraday in the stock. The total shares in the company is 8 crores roughly. Public holding is 1/4 or roughly 25% which implies 2 crore shares in public hands. The company trades 30 lakhs of deliverable quantity everyday.

Circular Trading??? Just thinking

Bottomline: This is the art of market allowing a stock to move 200-300 times:).

The last time I covered a similar company was JAYBHARAT TEXTILES AND REAL ESTATE which later got into SEBI net but still quotes at 10000 Crores market cap  (though it went down 50%).

Next week i would prefer to relax with overheated markets so might get time to write more on market manipulations and stuff which doesn't give returns but valuable insights about the market

posted by NOORESH MERANI on Tuesday, July 27th, 2010


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